* Euro falls but stays above $1.30, off 3-month low
* Uncertainty looms after election results in Greece, France
* But market positioning may limit euro’s losses
By Jessica Mortimer
LONDON, May 8 (Reuters) – The euro fell on Tuesday and was
vulnerable to more losses on worries that political uncertainty
in Greece and a change of French president could threaten
austerity plans seen as key to tackling the euro zone debt
crisis.
Greece’s two main pro-bailout parties failed to win a
majority in weekend elections, leaving questions over the
country’s ability to avert bankruptcy and stay in the euro.
Meanwhile, Socialist French president-elect Francois
Hollande has advocated an approach to tackling the debt crisis
centred more on growth, which may create tensions with Germany’s
insistence on fiscal austerity.
However, the euro stayed above the previous day’s
three-month low, hovering just above the $1.30 level, and
traders said its losses could be limited as investors take
profit on hefty short positions in the currency.
Analysts said that some in the market were coming round to
the view that a mixture of growth and austerity may be necessary
to get the euro zone economy back on its feet, given the deep
economic problems facing some euro zone countries that have been
implementing austerity measures.
The euro was down 0.2 percent at $1.3027, above a low
of $1.2955 hit on Monday, its weakest level since late January.
“The market will be in a wait and see mode and consolidating
around $1.30 until we get new indications as to what direction
Europe goes from here,” said Audrey Childe-Freeman, global head
of currency strategy at JP Morgan Private Bank.
She said there was a risk of the euro breaking sustainably
below $1.30. However, she said investors were not yet at the
point of anticipating that Greece could precipitate a euro zone
break-up.
The International Monetary Fund showed some new flexibility
on Monday over how quickly it would press deeply indebted
countries to bring their budgets under control if economic
growth weakens, in a sign that the growth rhetoric was gaining
momentum.
Data from the U.S. Commodity Futures Trading Commission
suggested the euro’s falls may be limited as many market players
have already taken bearish bets. It showed speculators still
held a relatively large net short position in the euro in the
week to May 1.
“Everyone says the euro has nowhere to go but down based on
economic fundamentals but they also say that market players are
already betting in that direction,” said Satoshi Okagawa, senior
global markets analyst at Sumitomo Mitsui Banking Corp. in
Singapore.
Given worries about the strength of the U.S. economic
recovery, traders said it made more sense to sell the euro
against currencies other than the dollar. Sterling was
particularly favoured and hit a 3-1/2 year high versus the euro
on Monday.
CLOUDS HANG OVER EUROPE
Greece’s Left Coalition party will get a chance to form a
government opposed to the country’s EU/IMF bailout, after the
mainstream conservatives failed to cobble together a coalition.
However, the chances of the Left Coalition being able to form a
government looked slim, raising the prospect of fresh elections.
Three Greek finance ministry officials told Reuters the
country might run out of cash by the end of June if it does not
have a government in place to negotiate the next installment of
EU/IMF aid.
“As far as markets are concerned, we’ve seen repeatedly that
fiscal irresponsibility gets punished more than a lack of
growth,” said Simon Grose-Hodge, head of investment advisory for
South Asia at LGT Bank in Singapore.
He expected any short-covering rally in the euro over the
coming month would be limited to around $1.32, adding the euro
could fall to around $1.28-$1.29 in that timeframe.
The euro was down 0.25 percent against the yen at
104.00 yen, staying above a three-month low near 103.24 yen hit
on Monday on trading platform EBS, while the dollar was
steady at 79.85 yen.
